No. 1252 - The cost of steering in financial markets: evidence from the mortgage market

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by Leonardo Gambacorta, Luigi Guiso, Paolo Emilio Mistrulli, Andrea Pozzi and Anton TsoyDecember 2019

The paper investigates how banks affect the welfare of consumers when they provide advice to those who have to choose between a floating or fixed rate mortgage. Using a structural model estimated on Italian data, this study verifies whether banks' consultancy activities have a differentiated impact on customers that depends on their financial sophistication.

The analysis shows that consultancy activities have a heterogeneous impact on consumers' welfare, depending on their level of financial sophistication. Although it may not always be oriented to the maximization of customers' benefits, banks can nonetheless provide useful information to less sophisticated customers, who are more exposed to the risk of taking bad financial decisions. For this type of customer, a financial education campaign that improved their financial competences, would lead to important welfare gains.

Published in 2022 in: Journal of Financial Economics, v.143, 3, pp. 1209-1226

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